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IMPACT AND CHALLENGES OF CAPITAL BUDGETING AS A TOOL FOR MANAGEMENT DECISION MAKING IN CONSTRUCTION INDUSTRIES (A CASE OF ZE-ROCK NIGERIA LIMITED, LOKOJA)

 Format: Microsoft Word   Chapters: 1-5

 Pages: 85   Attributes: COMPREHENSIVE RESEARCH

 Amount: 3,000

 Sep 15, 2019 |  05:34 pm |  2204

Abstract

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This research work is focused on the impact of capital budgeting as a tool for management decision making in construction industries, a case study of Ze-rock Nigeria Limited Lokoja Branch. The research work discuss about significant, effectiveness and also factors of capital budgeting as a management decision especially in construction industries. The research work further reviewed the techniques used in investment appraisal. The study employed drafted questionnaires, simple percentage analysis and used secondary data as a major instrument for gathering information. The data gathered were analyzed based on frequency distribution of respondents’ opinion and shown in contingency table and rank is percentage base on the findings from analysis of data. Recommendation s were made and conclusion was drawn on how to ensure effectiveness of capital budgeting in a construction industry.

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF STUDY

Budget is simply a financial plan or a quantitative plan. A household budget itemizes the family's source of income and described how this income will be spent. People plan for food stuff, housing, transportation, entertainment, education, savings and so on and so forth. Similarly, Government (Federal, State and Local Government) budget indicates the government income source and allocate funds to defense, welfare, Agriculture, education and at the same time, a firm plan for Labor, Raw material, capital goods and spend the money according to plan.

 The Federal Government budget is used as a device to ensure that the various ministries and extra-ministerial department limit their expenditure to amount; the corporate budget can also be used as a device for formulating the farms plan and for exercising control over various departments. Budgeting is thus, a management tool used for planning and controlling decision. Depending the nature of the business, detailed plan may be formulated for the next few month, next year five (5) years or even a longer period of time like capital budgeting. Any firm possess a large number of possible investment, each of these possible investments is an option available to the firm.

Some of these options are valuable and some are the essence of successful financial management, of course, a good plan helps the financial manager to know when to buy, at minimum cost and how to sell to maximize profit.

With this mind, this research work is to introduce readers to the techniques used to analyze potential business venture to decide which one are worth understanding. The researcher present Nine (9) number of different procedures that are used to in practice with a goal to acquit the reader with advantages and the disadvantages of the various approach or methods.

1.2    STATEMENT OF THE PROBLEMS

Capital budgeting is a tool for management decision making but when it is not appropriately used, it may hinder the intended decision.

Secondly, Budget is a plan on the estimates, even though is monitored, there will still be chances of erring. The variation is budgeting should be considered if not corrective action cannot be taken.

Also changing in circumstances may cause hurdles in the way of budgetary control, when there is change in project, it may cause problem to the organization. lack of coordination and participation may hinder budgetary control. The cost of budgetary control sometimes may outweigh the benefits derived from the project.

 

1.3    OBJECTIVES OF THE STUDY

This study intends to appraise the effects of capital budgeting and its positive contribution to the over-all performance of business organization, despite changes in economic and social conditions.

Specific objectives are:

i.             To make vital selection of a project by the top managers of the companies

ii.            To explain various decision-techniques of capital budgeting and their

merits and demerits

 

iii.           To examine the objectives of capital budgeting and decision making in

Ze-rock

iv.          To make recommendations

 

1.4    SIGNIFICANCE OF THE STUDY

A number of factors combine to make this study significance. The study will be based on three perspectives.

i.           To the company.

ii.          To the researcher and

iii.         To the general public

1.            THE COMPANY:- It compels the management to look into the future, set attainable objective and systematically plan inform of annual budgeting to effectively achieve the goals and objectives. The study will enable management to understand various techniques to be used also aimed at assisting the companies to make decision with regard to investment proposes replacement, expansion of existing product line etc.

2.            TO THE RESEARCHER:- A study of this nature widens the horizon and enriches the knowledge of the researcher on budget preparations, implementation and capital budgeting. It give me the opportunity to collect first hand information on the process and procedure of capital budgeting.

The study also helps me to know when to get back the sum of money invested in a business (pay Back Period)

 

3.            TO THE GENERAL PUBLIC:-This study will serves as a reference material to the general public on the subject relating to capital budgeting.

 

1.5 RESEARCH QUESTIONS

Research questions are questions that the researcher asks and try to know and find out the answer to such question in the due course.

The following are some question that is researchable in the course of this project work.

1.            Does capital Budgeting lead to vital selection of a project by the top managers of the companies in Ze-rock?

2.            Does capital budgeting lead to various decision techniques in a construction company and their merits and demerits'?

3.            To what extend does capital budgeting lead to management decision making in Ze-rock?

4.   How does capital budgeting make recommendation to Ze-rock?

 

1.6    STATEMENT OF HYPOTHESIS

Hypothesis can either be denoted by H1 or Ho: the former is rejected at the end of research work while the later is accepted at the end of the research work.

Hypotheses I

H1: Capital Budgeting lead to vital selection of a project by the top managers of the companies in Ze-rock

Ho: Capital Budgeting does not lead to vital selection of a project by the top managers of the companies in Ze-rock.

Hypotheses II

H1: Capital budgeting lead to various decision techniques in a construction company and their merits and demerits.

Ho: Capital budgeting does not lead to various decision techniques in a construction company and their merits and demerits.

1.7      SCOPE OF THE STUDY

The study covers all budget centers of the company's production, marketing, purchasing accounting. It covers how budget can be used by companies, organization, government etc. in making decision.

For the purpose of this project the work is narrow down to Ze-rock Nigeria Limited.


1.8       LIMITATION OF THE STUDY

In the course of this project work, have faced some difficulties that had limited findings. Some of the limitations are:-

A.           Time - Constraint: -Their is no enough time to collate all the relevant data  needed for easy recommendation and findings as a result of my project time conflicting with lecture time and exam.

B.           Scarcity of Resources: - Another factor that had been limiting my project work is lack of resources, especially financial resources; money is the most limiting factor that had limited me in the course of this project work.


C.           Another thing that limits the study was indifferent and uncooperative reaction of some respondents. Some of them refused to give me the answer needed especially in the accounting department thinking that want to get the information from their company and release it to their competitors.

 


1.9       DEFINITION OF KEY CONCEPTS

A.           Budget: - Budget can be seen as an estimate of income and expenditure for a set period of time. It may also be defined as a future plan of action for the whole organization or a section thereof.

Adams  (2006)      

Capital budgeting as been defined as a financial and or quantitative statement prepared and approved prior to a defined of time of the policies to be pursued by the organization in order to achieve organizational goals and objectives. CIMA (1991)

B.           CAPITAL: Various disciplines have their various views to the word "capital". The layman idea of capital is quite different from that of the economist and that of accountant.

To the layman, capital is the total amount of money that a man possesses including the one he borrowed.

To the economist, Capital is seen as a material wealth made from man- made resources which are used for the production of further material wealth.

          Accountants sees capital as (Assets Minus Liabilities=Capital) that is the monetary value of a business, after all debts had been subtracted or excess of business assets over its liabilities. It is regarded as the net worth of the business which can be determined by the balanced sheet prepared by the accountant at the end of each financial year showing the position of the business as the data it was prepared Haruna Ifcrt. (2009)Basic studies in accounting, Revised Edition.

C.           BUDGET CENTRE: - This is a department or a unit of an organization that is saddled with the responsibility of preparing a financial plan. CIMA (191)

D.           BUDGETING: - The process of using budget for planning and controlling is what we termed as budgeting. Iyoha (2002)

E.           MASTER BUDGET: This is a budget that contains all other budgeting. That is combination of all budgeting. Bax (1996)

F.           Capital budget:- Formal plan giving the details about how

fixed assets are acquired and/or how they are disposed. CIMA (1991)


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